Many investors prefer to take part in apartment syndication deals as a general partner, which allows them control of what is going to happen with the property. Even if that accurately describes you, there are several reasons why you should also take part in these types of deals as a limited partner. Here are three of the more significant ones.
One of the most important things that you can do is educate yourself on the investment process as much as possible. A way for someone who is generally a GP to do that is by being an LP, experiencing exactly what this process is like for those on the other end. Learning more about this perspective and putting yourself in their shoes will help you know how to better attract the types of LPs you are looking to get involved with.
This learning process applies to every aspect of the experience that you have as an LP.
For example, consider the initial email that you receive from a GP. Analyze it. What about it works for you, and what about it does not? These can be things that you see working or not working for most people, and they could be things that simply do or do not work for you personally — this doesn’t mean that they are necessarily wrong.
A significant benefit of going about this process in this manner is that you can learn new ways of doing things that work for you that you had not considered before. You can also realize aspects of how you had been going about things that you thought were working fine but, from this new perspective, you have realized are not working nearly as well as you had thought.
Of course, this learning process does not just apply to that opening email. You want to apply the same principle to how a GP goes about the rest of the steps. These include things such as the sign-up process and the deal itself. Does the former go smoothly? Does the latter provide financing that works for you and makes sense, being broken down in a way that an average LP would understand it? Also, do the fees make sense, and are they appropriate? How is the profit split? How is the underwriting structured?
What about the deal presentation? How is it structured? What would you change about it, if anything? Are you continuously updated on the status of your investment? How often? Are the updates regular and detailed? How often and with what method do you receive distributions? Do you receive distributions within the original time frame that had been communicated?
Also consider what happens when something goes against the plan, such as something adversely affecting the property. Are you kept abreast of those developments, or are you suddenly kept in the dark, unsure of what is happening? It is a significant red flag to receive slow or nonexistent communication from a GP once challenges are being met and addressed.
Another thing to consider is what happens when a GP comes to an investment agreement with you or other LPs but then later backs out. How is that decision communicated? Is it a simple “we backed out” message with few or no details, or does it include specifics on exactly what had caused this decision to be made?
More communication is generally better than less, whether things are going according to plan or not. Of course, GPs should also make sure to not inundate LPs with information. Finding a good balance is important.
If you want to invest in a new area, you should learn about it beforehand. This can involve thorough research that you pay for. Another way that you can go about this is to take part in apartment syndication deals in these markets as an LP. For example, if you are currently focused on properties located in Georgia, but New England starts intriguing you for a number of reasons, you could then invest as an LP in Massachusetts and nearby states before you decide if you want to be a GP there.
This will not only allow you to experience these new markets as an LP, but you can also gain a much greater insight into how these markets are going for GPs. In addition, you can generally gain access to market research that any GPs that you are working with have done on the area without needing to pay for it yourself.
Networking is one of the most important things that any person in any aspect of the business world can do, and that is very much the case with apartment syndication deals. Going to invest in deals that GPs have put together, and serving as an LP on them is one of the best ways that you can improve as a networker.
One of the most significant reasons for this is that this process provides a natural way to remain in contact with other GPs Staying in contact with others in this manner is generally better than doing so through sporadic lunch meetings or similar means.
Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.